Imagine this: You drive home late in the evening in a shiny new car powered by liquid fuel extract from the same rice crop you ate during dinner. Once home, you take a shower in water heated by the sun during the day.

Before going to bed, you turn on the light to read a book or to catch up with the news on television, in the comforting knowledge all the energy you are consuming is being produced by a wind farm in Inner Mongolia, hundreds miles away.

Don't feel guilty anymore, city folks. Your unrestrained consumption of energy to maintain your lifestyles in the world's fastest-growing economy is not going to burn a big hole in the sky that will be blamed for all kinds of environmental woes.

You can have your cake and eat it too.

If it seems too far-fetched, consider the government's concentrated efforts to develop "renewable" energy to reduce the nation's dependence on fossil fuels. With the aim of generating at least 10 per cent of the nation's electricity by wind, hydropower, solar energy, biomass and geothermal technology by 2020, the government is firmly committed to its long-term strategy of developing alternate energy sources.

As the supply of domestic fossil energy sources, especially oil, is being depleted, China is spending billions of dollars a year importing oil and coal, buying overseas reserves, building dozens of nuclear power plants along the coast line and encouraging conservation, while trying to build domestic oil reserves capable of meeting contingency needs.

In fact, the promotion of renewable energy goes beyond solving the expected energy shortage. The strategy also addresses a serious environmental issue that has been highlighted by the Kyoto Protocol, which took effect last month.

In China, 70 per cent of the energy is derived from coal. The nation, as a signatory of the Kyoto Protocol, is keen to bring pollution, especially in the major cities and industrial regions, under control, by using cleaner, more environmentally friendly energy sources.

The Kyoto Protocol, an international agreement endorsed by 141 nations, aims to control "greenhouse" gas emissions widely believed to be contributing to the phenomena of global warming. Although developing countries, including China and India, are not obliged by the agreement to cut CO2 emissions before 2012, China is accelerating its anti-pollution drive. It is clear wider application of renewable energy will play an important role in achieving its stated environmental-protection goals.

The Chinese Government's commitment to a cleaner environment was clearly reflected in the ratification of the first Renewable Energy Law, on February 28, by the Standing Committee of the National People's Congress (NPC), China's parliament.

The law, which will take effect in January, passed through the entire legislative process at least half a year ahead of schedule. Greenpeace, the international environmental awareness group, said China's legislation seeks to address the root of the pollution problems, and could help China become a world leader in renewable energy development.

The Chinese Government will encourage the supply and consumption of renewable energy with a combination of administrative and financial incentives, although the law fails to specify how the incentives will be granted.

"It is a landmark in China's energy industry," says Wang Fengchun, deputy director-general of the research department of the NPC's Environmental Protection Resources Conservation Committee.

"It follows the examples in many other countries, like the United States and Japan. The legislation is the first step before the industry takes off."

China started to tap renewable energy, such as small hydropower, wind power and solar energy, in the 1980s. It is part of the government's efforts to bring electricity to millions of people in remote areas without access to electricity.

So far, China has one of the world's largest installed capacity of small-scale wind and biomass renewable applications.

By the end of 2003, China had 30,000 megawatts of small-scale hydropower, which was equivalent to one and a half of the Three Gorges Dam project.

Capacity of wind mills connected to power grids reached 570 megawatts. More than 180,000 small off-grid wind mills, with a total capacity of 35 megawatts, were supplying local users, especially in northern and eastern China.

As for solar energy, about half of the world's solar water heaters are produced and marketed in China.

And the potential remains huge. Statistics from the National Development Reform Commission indicate China boasts small-scale hydropower of 125,000 megawatts, or four times more than the current level.

The capacity of wind power resources, as roughly estimated, is 1 million megawatts, or 250 per cent of China's current total generating capacity.

Still, the development of renewable energy remains at a snail's pace. While coal and oil makes up a lion's share, renewable energy takes 5 per cent of the total consumption mix. The world average is more than 13 per cent.

For one thing, grid companies are reluctant to buy renewable energy because it tends to be much more expensive than conventional energy, especially coal.

It takes wind mills at least twice as much as coal-fired power plants to generate electricity. For other renewable energy, such as solar energy, the price gap is even larger.

Moreover, a renewable energy project tends to require a huge investment. But the government has yet to formulate economic incentives, which is shunning way investors.

"It used to be a case-by-case policy. We have no planning, nor a consistent policy," says Wang.

"The government has not even collected necessary data of renewable energy resources."

Without the financial support, the technology is also lagging. Major components of facilities must be imported, further pushing up production costs.

Experts say the new law will help accelerate the industry's development.

According to the law, the Chinese Government will impose higher electricity tariffs on renewable energy to guarantee certain profits.

The grid companies are obligated to purchase all the electricity from qualified renewable energy, and pass on the higher electricity prices to end users.

And the grid companies are unlikely to push up the end-user electricity rate by a big margin, given the tiny share of renewable energy in the energy consumption mix.

Renewable energy producers may also enjoy favourable policies, such as tax cuts and favourable banking loans.

Insiders involved in drafting the bill say the government will hammer out specific regulations to specify the types of support.

"The law removes uncertainties for investors," says Bill Wallace, an adviser for the United Nations Development Programme and Global Environment Facility Programme.

"It lets investors know how the government will support, and how investments will benefit."

Still, the law is not a cure-all. Some doubts remain.

For one thing, it is not a surprise in China, which lacks a long tradition of awareness of the law, that laws are not effectively observed.

The law sets up general principles, but leaves out the specific details of how it should be enforced.

And how and when specific regulations offering the support will debut is still a big question.

The uncertainties mounted when the law wiped off the specific targets stated in the draft.

According to the draft, the electricity generating capacity of renewable energy is expected to more than double the level in 2000 to 120,000 megawatts by 2020.

The missing of the targets makes the execution of the policy more flexible, leaving room for the government to manoeuvre, experts say.

The law also takes out the clause that makes it mandatory for large power companies to build certain renewable energy.

Another problem is how the electricity tariff will be set, says Wang Wanxing, an expert with the Energy Foundation.

If it is too low, the enthusiasm of investors will be dampened. If it is too high, interests of customers will be hurt and investors will be reluctant to slash the costs.

In addition, as the renewable resources are unevenly distributed across the country, how to share the cost hikes, driven by the introduction of renewable energy, will be challenge.

"It is quite difficult to strike a balance of interests between different areas," says Wang.